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Court of Appeal of New Zealand |
IN THE court of appeal of new zealand |
ca259/98 |
between |
lane group limited | |
First Appellant |
AND |
night `n' DAY FOODSTORES LIMITED | |
Second Appellant |
and |
ANDREW PETER LANE AND DENISE CAROLYN LANE | |
Third Appellant |
AND |
d i & l paterson limited | |
Respondent |
Hearing: |
22 July 1999 |
Coram: |
Henry J Thomas J Tipping J |
Appearances: |
F B Barton and A C Beck for Appellants L A Andersen for Respondent |
Judgment: |
6 September 1999 |
judgments of the court |
HENRY J
[1] I concur with Tipping J's judgment which I have read in draft, and add only some brief comments on the issue of costs as between trial defendants.Rule 46(2)(b) of the High Court Rules expressly confers a discretion on the Judge to fix costs of a successful defendant as between plaintiff and an unsuccessful defendant.Whether or not that provision covers the present situation, the Court's general discretion remains.The issue is whether the Court should interfere with Young J's exercise of his discretion.I am persuaded that in the particular circumstances of the case it should.Notwithstanding Thomas J's expressed concerns, I do not see this result as being at variance with established principle, but rather in accord with it.In my view there are three factors relevant to the exercise of the discretion which with respect were not given adequate recognition or properly weighted by the Judge, and when taken together constitute a ground for appellate relief in accordance with this Court's recognised responsibilities.They are the amount actually recovered by the respondent, the reasonableness of joining Fisken and Associates Limited as a defendant, and the nonsuit elected in respect of Fisken.
[2] As to the first factor, the Judge awarded costs to Fisken in the sum of $36,500, clearly assessed with the reference point being the amount claimed against that party.That was appropriate for Fisken, because it was at risk for that amount and the assessment was in accordance with principle.But the appellant's actual liability has been determined at a much lesser amount, which I think should have formed the basis of any award to be made against it.A defendant has no control over the level at which a plaintiff decides to pitch the claim, and in fairness generally it should be the actual recovery which governs, in the same way as it does for a successful plaintiff.Here the relief pleaded was a grossly excessive award of damages of $500,000, reduced at trial to $176,633 but established at the lesser figure of $56,312.It is the last figure which is relevant for present purposes.Authority supports this view:see Ronaldson v Rankin [1948] NZLR 850, Norwood v Pokaka Timber Ltd [1955] NZLR 827, and Mee v DWD Hotels Ltd (No. 2) [1974] 2 NZLR 275.
[3] Secondly, the general statement in Public Trustee v Auckland Electric Power Board [1994] NZLR 782 relied upon - whether or not it was a reasonable and proper course to join the successful defendant - must be put in context.That involved a Deaths by Accident Act claim, where the plaintiff was unsure of which of one or more defendants were to blame for the death of the deceased.The authorities relied upon, including Besterman v British Motor Club Co Ltd [1914] 3 KB 181, are all cases of that nature.Pursuit of the successful defendant was therefore reasonable and proper, effectively being brought about as a result of the unsuccessful defendants' actionable fault.In Besterman Vaughan Williams LJ discussed the issue and observed:
The proper way is-do not join any defendant unreasonably;if the facts are such that it is reasonable to join them both and reasonable to be in a state of uncertainty as to which of the two is the really guilty one, then it is part of the reasonable costs of the action that the costs of the action which you have launched against one of those defendants, and who has succeeded in defending himself, should be borne by the man who is to blame.There is no rule in the matter;each case must turn upon its own circumstances.
[4] In the three New Zealand cases at first instance referred to in the passage of the judgment of Myers J in Auckland Electric Power Board, cited in Tipping J's judgment, doubt as to which defendant was responsible and the potentiality that the defendants would blame each other were the reasons given for the reasonableness of the joinder and the foundation of an award.Similar reasoning was applied to support awards in Legg v J.J. Craig Limited [1954] NZLR 258 and in Norwood v Pokaka Timber Co Ltd.The broad discretion approach was also applied in Mee v DWD Hotels Ltd (No. 2) and Kenderdine v Robert Raymond [1975] 1 NZLR 300.
[5] I accept that from its own perspective the respondent's decision to join Fisken was reasonable and proper.There were a number of reasons, tactical and practical, justifying that course of action.But for the reasons given by Tipping J I am of the view that that does not of itself justify an award under R46(2)(b).It can properly be seen as the foundation of the enquiry, but it is then still necessary, without giving undue weight to that circumstance, to give consideration to the particular relationship, or potential relationship, as amongst plaintiff and defendants.I agree with Tipping J's assessment of the present case in that regard.It can be added that in the circumstances the liability of Lane Group for any of the pleaded wrongful conduct of Fisken would appear clear, whether under s45(2) of the Fair Trading Act 1986 or s6(1) of the Contractual Remedies Act 1979.
[6] Thirdly, I consider the plaintiff's election of nonsuit in such a situation is relevant.Mikaere v Te Whaka Waiapu [1938] 592 and Mee v DWD Hotels Ltd (No. 2) are examples where awards have been made in respect of a nonsuited defendant, but both were Judge imposed rather than plaintiff elections.Here the respondent exercised its absolute right to elect a nonsuit, a considered consequence of an application by Fisken for judgment. Fisken's potential liability therefore remained.It has not been held to be a successful defendant by judgment and thereby exonerated from liability. Indeed Young J referred to a number of possible outcomes had the issue gone to determination.In my view this uncertainty, and the further uncertainty as to how liability would then have been shared by Fisken and the appellant as between themselves, required positive recognition.Delivery of the substantive judgment did not in my opinion, contrary to the view expressed by Thomas J, extinguish any potential liability on the part of Fisken.The respondent was then arguably still entitled to pursue that aspect of its claim to the point of obtaining judgment concurrent with that against Lane Group. Insolvency of Lane Group is an example of the possible utility of that remaining cause of action.
[7] As to overall justice, it is pertinent to keep in mind the effect of the present judgment.Lane Group has been found liable for losses of $56,312 plus interest, a sum well within the jurisdiction of the District Court.On that judgment it has also been found liable for costs of $36,500 in respect of a party joined as a defendant by the respondent, but against whom the respondent then elected a nonsuit.Some adjustment to that result is called for.
[8] I would therefore allow the appeal of Lane Group, but only to the extent expressed by Tipping J.All appeals should otherwise be dismissed.
THOMAS J
A dissenting judgment
[9] I have read with interest the judgment to be delivered by Tipping J.I apprehend that it will become the judgment of the majority.They propose to dismiss Lane Group Ltd's appeal on all grounds but one.I disagree with them in respect of that one ground.The ground relates to the trial Judge's order directing Lane Group Ltd, the unsuccessful defendant, to pay the costs of the successful defendant.
[10] I am uncomfortable at the prospect of delivering a dissenting judgment on a question of costs.Dissenting or separate judgments, it is thought, should be reserved for more major issues, such as those involving policy considerations where there is room for the expression of legitimate differences (e.g., Daniels v Thompson [1998] 3 NZLR 22), or reflecting different judicial approaches, such as formalism or substantialism (e.g., Wattie v Commissioner of Inland Revenue (1997) 18 NZTC 13,297), or requiring the emphasis of fundamental legal or equitable principles (e.g., Russell McVeagh McKenzie Bartleet & Co v Tower Corporation [1998] 3 NZLR 641), or seeking to arrest a trend which is seen to be contrary to the enduring values of the law and the function of the courts (e.g., Choudry v The Attorney-General (CA 217/98, 6 July 1999)and Lovelock v Waitakere City Council[1997] 2 NZLR 385), or endeavouring to keep the law abreast of the times and serving the interests of justice (e.g., R v Hines [1997] 3 NZLR 529), or assaying a contribution to the future development of the law as contemplated by Lord Steyn in Fisher v Minister of Safety and Immigration (e.g., UEB Packaging v QBE Insurance (International) [1998] 2 NZLR 64), or exposing demonstrably illogical reasoning in a decision of high authority (e.g., Pacific Coilcoaters Ltd v Interpress Associates Ltd [1998] 2 NZLR 19), or resisting the appellate disposition to unnecessarily restrict the discretion of judges at first instance (e.g., R v Falealili [1996] 3 NZLR 664), or asserting the law's deficiency in reflecting the position of women in the community (e.g., R v H [1997] 1 NZLR 673;Ruka v Department of Social Welfare [1997] 1 NZLR 154;and W v Attorney-General (CA 239/98, 6 May 1999), or Maori, (e.g., New Zealand Maori Council v Attorney-General [1996] 3 NZLR 140;and McRitchie v Taranaki Fish and Game Council [1999] 2 NZLR 139), or minority groups (e.g., Quilter v Attorney-General [1998] 1 NZLR 523), or insisting upon fair dealing in the relationship of employers and employees (e.g., New Zealand Fire Service Commission v Ivamy [1996] 2 NZLR 587;Lowe Walker Paeroa Ltd v Bennett and Ors (1998) 5 NZELC 95,806;and Air New Zealand v Raddock (1999) 5 NZELC 95,875), or rejecting what is perceived to represent an aberrant outcome (e.g., Neumegen v Neumegen [1998] 3 NZLR 310).Yet, few cases it would seem are exempt from one or more of these categories.The present case is no exception.Probably it is safer to conclude that, like negligence, the categories of dissent are never closed - while at the same time accepting that none would necessarily have been dissenting judgments on another court at another time.
[11] Departing from what has been the law and practice for at least 44 years, the decision of the majority in this appeal illustrates a disposition which is unnecessarily adverse to plaintiffs.In Bronlund v Thames Coromandel District Council (CA 190/98, 26 August 1999), I expressed my concern that in many cases, contrary to the principle of restitutio in integrum, the damages awarded by the courts do not compensate plaintiffs for their true loss.In the present case, for example, the successful and innocent proprietors of the plaintiff company will have the relatively modest award of damages which they obtained eroded by the costs incurred by them in obtaining judgment against the wrongdoer.There must be a real risk that, unless the courts are realistic in their approach to claims by plaintiffs, the law will be seen by many as niggardly or mean-spirited, all too prepared to tolerate individual injustices.
An outline
[12] As both Lane Group Ltd and D I & L Paterson Ltd, the respondent, are privately owned by Mr and Mrs Lane and Mr and Mrs Paterson respectively, I will refer to the parties as "the Lanes" and "the Patersons".The context may, of course, indicate otherwise.
[13] For the record, I agree with the majority's findings that there is no basis on which to upset the trial Judge's conclusions to the effect that;
* the Lanes' conduct was misleading;
* the Patersons were in fact misled;
* it was reasonable for them to be misled;
* the loss suffered by the Patersons was caused by the Lanes' conduct;and
* the damages awarded effectively put the Patersons in the position theywould have been in but for the Lanes' misleading conduct.
[14] I cannot, however, accept that the trial Judge's order that the costs of the second defendant, Fisken and Associates Ltd ("Fisken") be paid by Lanes should be reversed.In my respectful view the majority are in error in the following respects;
* the distinction drawn between the legal principle as applied by thetrial Judge and as articulated by Tipping J is more illusory than real;
* in holding that the trial Judge applied the wrong principle andexercised his discretion wrongly;
* in determining that the basis on which Fisken was joined was"fragile" or weak;and
* in concluding that it was not just that Lanes should bear Fisken'scosts.
[15] The Lanes were the wrongdoers.They were guilty of misleading conduct pursuant to s 9 of the Fair Trading Act.In the process of obtaining judgment against the Lanes' company the Patersons' counsel saw fit to join Fisken as a party.In the circumstances he could not have done otherwise.Nor could Paterson's counsel have been expected to discontinue, or advise his clients to discontinue, against Fisken at any time before he elected the non-suit.The majority's decision to reverse the costs order and make the wronged party pay for costs legitimately incurred in obtaining judgment against Lanes cannot be justified.
The legal principle
[16] The majority draw a distinction between the law as perceived by them and the law as applied by the trial Judge.The distinction, with respect, is fine to the point of extinction.
[17] After a close perusal of the relevant cases, I cannot agree that there has been the change in the law discerned by the majority following the United Kingdom Court of Appeal's decision in Hong v A & R Brown Ltd (1948) 4 QB 515.It is said by Tipping J that this case represents a development in England when, in 1948, the Court adopted a somewhat different approach from that applied in Besterman v British Motor Club Co. Ltd (1914) 3 KB 181. With respect, that is not the case.Hong's case was decided 41 years ago and if it had indicated a different approach one would have expected the point to have surfaced long before now.In fact, the courts have always had a discretion whether to award the costs of the successful defendant against the unsuccessful defendant and, if so, a discretion as to what amount to award. The only substantive inhibition is that the exercise of that discretion, as with the exercise of any discretion conferred on the court, must be exercised in a principled or judicial manner.
[18] In Besterman's case the plaintiff sued two defendants jointly and severally and succeeded against only one.The unsuccessful defendant had not intimated before trial that it intended to throw the responsibility for the accident in issue on the other defendant.The Court of Appeal held that there was no rule that, in order to justify an order that an unsuccessful defendant pay a successful co-defendant's costs, the unsuccessful defendant had to give notice to the plaintiff that he was going to throw the blame on to the other defendant.Rather, it was a case whether it was a reasonable and proper course for the plaintiff to join both the defendants in the action.In his judgment, Vaughan Williams LJ, having referred to Bullock v London General Omnibus Co (1907) 1 KB 264, expressly said that he would not call it a rule, "because there is no positive rule" (at 185).His judgment, and the other judgments, are riddled with references confirming that the trial judge has a discretion.For example, Kennedy LJ posed the question in these terms (at 188):"Was there material upon which he [the trial judge] could come to the conclusion which he did come to, using his discretion judicially?" (Emphasis added).Elsewhere the same learned Judge said (at 189);"to lay down a rule in a matter of discretion is not right".
[19] Hong's case did not reverse or distinguish Besterman's case. The headnote states that the Court of Appeal considered and explained a statement by Swinfen Eady LJ in Besterman's case, but the Court clearly endorsed and applied Besterman.At issue in Hong's case was a rule similar to r 74(3) of our High Court Rules providing that a plaintiff who is in doubt as to the person from whom he or she is entitled to redress, may join two or more defendants with the intent that the question as to which defendant is liable may be determined as between all parties.The Court held that the rule merely gave the plaintiff "an option" to take the course indicated in the rule and did not entitle him "as of right" to a special order as to costs.It reaffirmed that the question whether an order should be made was a matter of discretion for the Judge and the fact that, when the action was started, it was a reasonable course for the plaintiff to join the successful defendant did not "entitle" the plaintiff to an order that the costs of the successful defendant be paid by the unsuccessful defendant where the Judge is of the opinion that "it is not reasonable that the unsuccessful defendant should be penalised".
[20] Lord Greene MR stated (at 522);"One thing the Besterman case decided was that the absence of any blame-throwing by the unsuccessful defendant is not sufficient to disentitle a Judge to make a `Bullock order' if, on the facts of the case, he thinks that, in his discretion, he ought to make one."He further said (ibid) that the Besterman case "also lays down the proposition in clear terms that there is no rule, except the ordinary rule, as stated by Kennedy LJ, in that case, that there must be material on which the judge can exercise his discretion and, of course, he must exercise it according to the ordinary principles on which judges do act in the exercise of their judicial discretion."In other words, the Master of the Rolls simply held that the Besterman case was no authority for the proposition which counsel for the plaintiffs in that case desired to quote it (at 523)."There is," he said (ibid), "no word in the Besterman case which, in my opinion, can properly be construed in any other sense."Consequently, with respect, it is patently wrong to suggest that Hong's case adopted a different approach from the Court in Besterman.
[21] My perception is confirmed in the first of the later two cases referred to in Tipping J's judgment, Mayer v Harte (1960) 2 All ER 840.Harman LJ cites Besterman (at 845) for the proposition that it is not necessary to justify an order that the successful defendant bear the costs of the unsuccessful defendant for the one defendant to blame the other.Hong is then referred to, in order to show that "the practice" was still followed as at that date, that is, 1948.The headnote in Hong is mentioned in order to show that the judge has a discretion in the matter. Harman LJ goes on to say (at 846);"as indeed is always the case in questions of costs, but this discretion, like all others, must be exercised in a judicial manner and all proper circumstances must be taken into account."The second case referred to in the judgment of the majority is Goldsworthy v Bickell [1987] Ch 378.It does not mention Besterman or Hong's cases.Rather, in the context of an argument whether an order requiring the unsuccessful defendant to pay the successful defendant's costs could be made where the cause of action against one defendant is different from that against the other defendant, the Court indicated (at 417) that it was entirely satisfied that it was reasonable for the plaintiff to join the successful defendants in the circumstances of that case and that it would have been ill-advised not to join them."That being so", Parker LJ said (at 418), "it is plain that we have a discretion with regard to the costs of all parties."
[22] In New Zealand, in Public Trustee v Auckland Electric Power Board [1994] NZLR 782, this Court did no more than reach the conclusion that the joinder on the facts of that case was reasonable and proper and that the costs "should" be paid by the unsuccessful defendant.It was never suggested that the Court did not have a discretion.Indeed, the Judge at first instance had in his discretion adjudged that the unsuccessful defendant should not have to pay the successful defendant's costs.His order was reversed when this Court came to a different conclusion on the law.
[23] Nor, with respect, did Brown v Heathcote County Council (No. 2) [1982] 2 NZLR 618 seek to lay down a "rule or even a general principle" governing the question of costs.The wide discretion vested in the court is evident in Hardie Boys J's opening statement when turning to consider the issue.He said (at 626);"Whether an unsuccessful defendant should be required to contribute at all to the costs payable by the plaintiff to the successful defendant, and if so to what extent, are questions to be decided according to the justice of the case."(Emphasis added).It was this dictum that Young J applied and, in doing so, in my view correctly, considered whether the joinder of Fisken was reasonable before examining whether there were other factors, such as prejudice to Lanes, which would outweigh that consideration.
[24] It is worth adding that both McGechan on Procedure and Sims Court Practice state the law in these settled terms.McGechan states (at para 47.06, 3-83):
Where the Court finds the plaintiff was justified in suing two defendants, and where the plaintiff has succeeded only against one of them, the Court has a discretion to order the unsuccessful defendant to pay the successful defendant's costs, and such an order is normal practice.(Emphasis added).
[25] Sim is even more explicit (at r 46.11, E/246):
The Court must be satisfied that it is just in the circumstances that an unsuccessful defendant should either directly or indirectly pay the costs of a successful defendant.
If it was reasonable for the plaintiff to have joined the successful defendant, the Court is more likely to make a Sanderson order rather than order costs directly against the plaintiff.(Emphasis added).
[26] With respect, nothing has changed.Tipping J has created a long-undiscovered distinction where, in fact, none exists.The trial Judge correctly ascertained the law and exercised his discretion in accordance with that law.
[27] The law does not deserve such refinements.The award of the costs of the successful defendant against the unsuccessful defendant is within the discretion of the court.Numerous factors may bear upon that discretion. Prime among these factors, as to be expected, is whether the joinder of the defendant who was ultimately successful was reasonable and proper.In most cases, unless there is some countervailing factor, the fact that the joinder was reasonable and proper will lead the trial Judge, in the exercise of his or her discretion, to require the costs of that defendant to be paid by the unsuccessful defendant.This is the law.It has been the settled legal principle for many decades.And there is nothing difficult about it.
The trial Judge got it right
[28] In a separate judgment following the receipt of memoranda from counsel, the trial Judge first observed that, because of the non-suit, he had not been required to form any firm view as to the liability of Fisken.He considered that the merits of the real estate agent's position may well have depended upon the extent to which the salesman was aware of "infelicities" in the information which was passed on.He acknowledged, however, that while it was at least possible that he would have entered judgment against Fisken had Patersons not elected a non-suit, he had no doubt that Fisken must be treated as a successful party and be entitled to an appropriate award of costs.
[29] In turning to the question of the incidence of the costs fixed in favour of Fisken, the learned Judge began by quoting the dictum of Hardie Boys J in Brown v Heathcote County Council (No. 2) (supra) set out above.As already noted, the dictum encompasses the questions whether the unsuccessful defendant should be required to contribute "at all", and "if so" to what extent, and confirms that these questions "are questions to be determined according to the justice of the case", that is, as the Judge perceives the justice of the case in the exercise of his or her discretion.Later in his judgment the Judge observed of Hardie Boys J's approach that an unsuccessful defendant will "usually" pay the costs of a successful defendant unless it can be shown that the joining of the successful defendant was not a reasonable and proper course for the plaintiff to adopt.
[30] The Judge then referred to the question whether the joinder was reasonable and proper before addressing the Paterson's explanation as to why they joined Fisken.He referred to Mrs Lane's affidavit filed in respect of an interlocutory matter in which she claimed that all the relevant information had been supplied to Fisken and that it was authorised to supply such information to purchasers on request.He adverted, then, to the fact that Fisken's salesman had denied receiving the information and that Mr Lane, in his evidence, no longer maintained that it had the information and was authorised to supply it on request.Instead, he claimed that he had left the details with Fisken's receptionist.Mr Barton, appearing for the Lanes, is recorded as having submitted that there was no material difference between leaving the information with the receptionist and giving the material details to the salesman.These facts are dealt with in more detail in the next section of this judgment.
[31] The learned Judge then stated:
I think that the plaintiff was confronted with a range of possibilities. At one end of the continuum, Fisken & Associates Ltd was merely the innocent conduit of information originating with Lane Group Ltd which it had no reason to suspect was misleading.Assuming both that this was the case and was known to be so by all parties, the only point in joining Fisken & Associates Ltd would have been to cover the contingency that the other defendants might prove to be insolvent.At the other end of the continuum was the possibility that all relevant information had been provided to Fisken & Associates Ltd by Lane Group Ltd and that the decision as to what should, or should not, be told to the plaintiff was effectively left with the real estate agent.If this was the position then I think it likely that the burden of any judgment would have rested significantly with Fisken & Associates Ltd. On the continuum which I have postulated there are, no doubt, a number of other positions of an intermediate nature.(Emphasis added).
[32] The learned Judge said that, given that he was not in a position to make a finding as to the extent of the knowledge of the salesman as to the facts underlying the reasons why he had held the information supplied was misleading, he did not think it open to him to find fairly that it was not reasonable and proper to join Fisken.He added, however, that he was uneasy about deciding the issue on the basis of something equivalent to an onus of proof on the unsuccessful defendant, particularly in a case where he had never been required to reach any definitive views as to the position of Fisken.The Judge then correctly observed that the drift of the cases certainly suggested that the issue is to be looked at in terms of how the matter would have appeared to the plaintiff when the proceedings were commenced.Obviously, he acknowledged, there may be special issues which arise where it becomes clear at an early date that a claim against a particular defendant is simply not viable.If that is the case, he said, then it must be material as to the incidence of costs.
[33] The Judge then continued:
Here the plaintiff could not be expected to know precisely the stance which would be adopted by Lane Group Ltd at trial (this despite briefs of evidence and all the other incidents of modern litigation).In those circumstances, it seems to me that the plaintiff was entitled to cover the contingency that issues might arise as to the contribution of Fisken & Associates as to the losses which the plaintiff sought to recover.It should be remembered that the awarding of relief under the Fair Trading Act is discretionary. Putting myself in the position of counsel for the plaintiff, there would have been considerable risks in not joining Fisken & Associates Ltd.As well, there is the solvency issue although this was not raised by Mr Anderson. (Emphasis added).
[34] In the result, he reached the view that the costs awarded to Fisken ought to be met by the Lanes.
[35] Finally, the Judge admitted to having been troubled by the question whether the abrupt election of a non-suit by Patersons against Fisken in the course of the trial had prejudiced Lanes.On the information before him he thought it certainly quite possible that judgment would have been entered against Fisken.On reflection, however, he held that there had been no real prejudice to Lanes.
[36] The Judge then made a Sanderson Order.
[37] In substance, the learned trial Judge exercised his discretion in the manner contemplated by Tipping J.He appreciated that he had a discretion.He had regard to a number of factors.The major factor, as it had to be in the circumstances, was the question whether it was reasonable for the Patersons to join Fisken.After examining the facts he held that it was, and exercised his discretion accordingly.
The joinder was reasonable and proper.
[38] I entertain no doubt that joinder of Fisken was justified.It can be justified on three grounds;
* the cost of joinder was a legitimate cost to the Patersons in pursuing their claim and obtaining judgment;
* the joinder was initiated by Mrs Lane's claim (false as it eventuated) that the Lanes had supplied all the relevant information to Fisken and authorised it to reveal the information to the Patersons;and
* the justice of the case favours the Patersons.
[39] In an affidavit filed for the purposes of an interlocutory matter, before Fisken had been joined, Mrs Lane claimed that her husband and she had supplied all the details in issue in this case to the real estate agent and that the agent was authorised to supply the information to purchasers on request.This statement was clearly intended to shift responsibility on to the agent or, at least, away from them.Paterson's counsel then had no real option but to join Fisken.As the Judge noted, the Patersons and their counsel could not be expected to know precisely the stance which the Lanes would adopt at the hearing.The presence of Fisken as a party eliminated the possibility that the Lanes would seek to guild their conduct by shifting responsibility to the real estate agent.The Paterson's counsel did what any counsel worth his or her salt would have done in order to secure judgment for his clients.
[40] Counsel's decision proved to be prescient.Fisken's salesman denied in his draft brief of evidence that he had received the information which Mrs Lane asserted had been given to him.Mr Lane then changed their story.He said that he had left the details with Fisken's receptionist.Nothing was said about authority to supply the information on request.
[41] If Mrs Lane's claim had proved correct, it would bear directly on the discretion of the Court as to whether to make an order and what order to make under s 43 of the Fair Trading Act.Subsections (1) and (2) of that section provide that where a person has suffered loss or damage by conduct constituting a contravention of the provisions of the Act prohibiting various practices in trade, including s 9, the Court may make certain orders.The orders include an order declaring a contract to be void, or varying the terms of a contract, or directing the wrongdoer to refund money, or an order to make good the amount of the loss or damage suffered.The Court's discretion to make an order is entire and its discretion as to what order to make extensive.No counsel could enter upon this case without being alert to the scope of the Court's discretion in respect of the remedy available.
[42] Attention is drawn to r 74(1) of the High Court Rules.That rule provides that persons may be joined as defendants against whom a right to relief arises out of the same transaction or matter whether jointly, severally, or in the alternative.As from the moment Mrs Lane indicated that the information in issue had been supplied to Fisken, and the Patersons claimed not to have received it, this rule was applicable.Paterson's right to relief against Lanes and Fisken arose out of the same transaction or matter and those parties allegedly would be liable jointly, severally, or in the alternative.The direct application to the Paterson's claim of this subrule simply cannot be ignored.
[43] Nor, however, would I contend that r 74(3) is not relevant.Under that subrule, a plaintiff who is in doubt as to the person or persons against whom he or she is entitled to relief, may join two or more persons as defendants with the intent that the question as to which (if any) of them is liable, and to what extent, may be determined as between all parties to the proceeding.In this case, therefore, not only were the Lanes and Fisken going to be held liable "jointly, severally, or in the alternative," as stated in the previous paragraph, but the Patersons were in doubt as to the party against whom they might ultimately obtain relief (if any).It was a "reasonable state of uncertainty", to adopt Vaughan Williams LJ's words in the Besterman case (at 187) made more acute by the fact that the relief sought was discretionary. As Vaughan J stated (at 187):"There is no rule in the matter;each case must turn upon its own circumstances."
[44] Further, and with respect, it is a counsel of sheer perfection, and therefore unrealistic, to suggest that at a certain point the Paterson's counsel should have discontinued against Fisken.The reasons for joining that firm had not become spent at any time before the non-suit was elected.Indeed, I do not doubt that Paterson's counsel would have allowed Fisken to remain a party throughout the hearing but for the fact his hand was forced when the lawyer appearing for Fisken moved for judgment at the close of the plaintiff's case.In the circumstances, Paterson's counsel might just as well have discontinued against Fisken, or even consented to judgment being entered for that company.The questions facing the Judge in considering costs would have been the same or substantially the same.As there was no possibility of any further action against it, Fisken effectively became a successful defendant. Nor is there any significance in the fact that, being a non-suit, it was open to the Patersons to pursue Fisken further.The non-suit no doubt served the Paterson's purpose of ensuring that the Lane's evidence adhered to the line taken by their counsel in cross-examination of the Patersons and their witnesses and that they did not revert to the story, or some approximation of the story, sworn to by Mrs Lowe in her earlier affidavit.But that apart, as from the moment the Judge delivered his judgment there was no realistic possibility that Fisken could ever be sued by the Patersons.No potential liability remained.Fisken was properly treated as a successful defendant by the Judge.
[45] It is not an answer to say that the joinder was not justified because Lanes would have been liable for Fisken's conduct in any event.Certainly, under s 45(2) of the Act, the company is deemed to have been also engaged in the conduct of an agent which contravenes the Act.But this will not avail the plaintiff unless the agent's conduct can be described as misleading or deceptive in terms of s 9.Thus, it was open to the judge to decide that the steps taken by the Lanes in providing the necessary information to the real estate agent with authority for him to disclose it to the Patersons, and the agent's oversight in not passing the information on to the Patersons, did not amount to misleading conduct for the purposes of s 9.Furthermore, as the remedies set out in s 43(2) are discretionary, the judge could decide to apportion the loss between the Lanes and the agent.
[46] Nor is it any answer to say that the joinder was not reasonable because it was done for tactical reasons.In fact, the reasons for the joinder were not solely tactical.As already indicated, the wide discretion vested in the Court in respect of remedies under the Fair Trading Act in itself justified the joinder.But I accept that there were also tactical reasons, and I find that they too were compelling.Certainly, there may well be cases where the plaintiff should not be spared paying the costs of the successful defendant where a joinder has been undertaken solely for tactical reasons and those reasons cannot be said to be legitimately incurred in obtaining judgment against the unsuccessful defendant.But this is not such a case.Fisken's joinder by the Patersons was essential in the process of obtaining judgment for the wrong which had been done to them.As the trial Judge said;"putting myself in the position of counsel for the plaintiff, there would have been considerable risks in not joining Fisken and Associates Ltd".In all, Paterson's counsel would have been seriously at fault if he had not joined Fisken and kept it in the proceeding for as long as he did - or, indeed, for the duration of the trial.
The quantum of the contribution
[47] It is not correct to say, as Tipping J does, that the trial Judge fixed the costs on the original sum claimed by the Patersons of $500,000.He did not.Rather, he awarded a round figure to cover both costs and disbursements primarily based on the actual costs incurred.The Judge first referred to Fisken's solicitor and own client costs, including counsel's fees, as coming to $45,413.60.Disbursements came to another $14,137.89, of which the vast bulk related to the fees of an expert witness.Total costs, he noted, were in the order of $60,000.He then said that scale costs calculated on the basis of the original claim came to $19,680 and disbursements, including the expert's fee, to $24,887.03.Treating the claim, however, as being for $176,633, the figure to which it was amended, and taking the disbursements calculated as before, scale costs came to $15,186.03.The Judge thought the allowance under the regulations in relation to the expert to be grossly inadequate.
[48] Having regard to those circumstances, the Judge decided to award costs and disbursements in the sum of $36,500.He pointed out that "with heavy rounding" this sum represented approximately fifty per cent recovery in relation to the legal fees and approximately one hundred per cent recovery in relation to the disbursements, including the expert's fee in full.
[49] The Judge followed the same process in awarding costs against the Lanes. He referred to the actual total of the costs and disbursements incurred by the Patersons ($68,318.24) and noted the amount of costs according to scale ($14,737.13).Having regard to the certain factors which he listed, he then awarded costs and disbursements at $40,000.
[50] The trial Judge concluded his exceptionally thorough judgment on the question of costs with an "overview".He expressed himself as being "uncomfortably aware" that the total costs award against Lanes was well in excess of the primary amount for which judgment was entered.Although, as he said, this factor had given him "cause to pause" he did not see it as being decisive.He referred to the fact that the Rules make provision for the position of a defendant who is sued for an overstated claim, in that they have the opportunity to make a payment into Court, so that the solution was in the Lane's own hands.He then confirmed that he had also awarded costs on much the same basis to the Patersons and Fisken, in each case approximately half the solicitor and own costs plus the recovery of disbursements in full.
[51] There is nothing amiss in the trial Judge's decision in the circumstances of this case to fix costs as a percentage of actual costs rather than base them on the amount recovered.That is done all the time.In the result, however, the costs may come close to or even exceed a judgment sum which is relatively small.As the Judge pointed out, that is what happened in this case.The costs for which the Lanes became liable exceeded the judgment sum.But the Judge expressly directed his mind to that fact, explaining the reasons why he did not regard it as decisive.
[52] The Judge plainly treated the costs against Fisken as part of the costs of the trial and saw no reason to reduce Lane's contribution to those costs having regard to the amount recovered against the Lanes.This decision was also a legitimate exercise of his discretion.Fisken's costs had to be borne by either the successful plaintiff or the unsuccessful defendant, and the Judge chose to fix the wrongdoer with that burden.The question which he had earlier addressed at length remained;was it reasonable for the Patersons to join Fisken in the proceeding?If, as he held, it was reasonable, there is no obvious reason why only a proportion of Fisken's costs should be appropriated to Lanes.They remain part of the overall costs incurred by the Patersons in obtaining judgment against the Lanes.The position might be otherwise if the Judge had seen fit to base costs on the amount recovered.But he did not. Costs represented approximately half the costs and disbursements actually incurred.
[53] As it now stands, the amount of $7,500 allowed by the majority does not even cover Fisken's disbursements.In effect, the Patersons are being required to bearall Fisken's costs as allowed by the Judge, as well as just under half of that company's disbursements.
The interests of justice
[54] Finally, it seems to be generally accepted that the ultimate consideration is the interests of justice.If that concept is to have any meaning, the trial Judge's order should stand.In summary;
* the Lanes, and not the Patersons, were the wrongdoers;
* the Patersons had no realistic option but to join Fisken;
* it is also unrealistic to suggest that the Patersons should have discontinued against Fisken at any earlier time;
* Mrs Lane's claim in her affidavit (false as it eventuated) initiated the joinder;
* there is no other factor which the trial Judge has not considered, or considered adequately, which would make it unreasonable to impose the costs on Lanes;and
* the justice of the case;it may be thought that it is unfair to expect the Lanes to bear the costs, but it is even more unfair that those costs should be borne by the Patersons.
Some closing points
[55] While one's principal concern must be for the impact of the majority's decision on the Patersons, it may be noted that it is also unfair to their counsel and to the trial Judge.It is unfair to their counsel in that he must now bear the opprobrium of having made a mistake in his conduct of their claim, a mistake which has cost his clients a substantial proportion of their judgment against the wrongdoer.If it is any consolation to counsel, had I been in his shoes when I was in practice I would have made the same decision to join the Lanes.The majority's decision is also unfair to the trial Judge in that, having addressed the law and assessed the relevant facts in great detail, he gave a reasoned and full explanation for the exercise of his discretion.It is now said that he went off the rails.I can only say that many Judges, myself included, would have reached the same conclusion as he did.
[56] The wider impact of this revision emanating from Tipping J's judgment of the law and practice in New Zealand may also be noted.It is not only that the accepted basis for awarding costs as between defendants which has been consistently applied in the Courts for over 40 years is now unsettled, but the decision is likely to have a significant impact on the conduct of litigation or, more particularly, claims by plaintiffs.Counsel for plaintiffs must run a greater risk than in the past that what seems to them a reasonable or even necessary ground for joining a second defendant may not ultimately be accepted by the Court.Their clients will be held liable for costs which have been incurred in order to avoid the risk of not succeeding in obtaining the judgment to which they are entitled.There is also a danger that the possibility of having to bear the brunt of a successful defendant's costs when the joinder of that defendant is prudent in order to secure judgment will become a daunting impost for plaintiffs in their quest to redress the wrong allegedly done to them.Certainly, defendants held liable for whatever wrongdoing is in issue will argue that they should not be subject to a Sanderson or Bullock order in cases where they would not have raised that argument in the past.The costs of the successful defendant have been put at large in a manner which can only react to the disadvantage of plaintiffs and to the benefit of unsuccessful defendants.
[57] Since writing this judgment I have seen the separate judgment of Henry J. While I do not agree with him or accept that this Court should interfere with the trial Judge's discretion, I apprehend that his judgment proceeds on the basis of established principle.The trial Judge addressed the three factors referred to by Henry J and I have dealt with them in the course of this judgment, more particularly at paragraphs [38] - [43] and [45] - [46] (reasonableness of joinder), [44] (election of non-suit), and [47] - [53] (quantum of contribution).
TIPPING J
Introduction
[58] The three appellants, Lane Group Limited, Night 'N' Day Foodstores Limited and Mr and Mrs Lane, appeal from a judgment delivered by Young J in the High Court at Dunedin.In that judgment the Judge ordered Lane Group Limited ("Lane Group") to pay to the respondent, D I & L Paterson Limited ("Paterson Limited") the sum of $93,104.56, made up of $56,312.00 plus interest of $36,792.56.The judgment represented monetary compensation payable to Paterson Limited by Lane Group on account of a breach by the latter of s9 of the Fair Trading Act 1986.The Judge found that when it sold to Paterson Limited a business called Godfreys Pies, Lane Group was guilty of misleading conduct with regard to the customers and turnover of the business.
Background circumstances
[59] Mr and Mrs Lane own Lane Group and Mr and Mrs Paterson own Paterson Limited.In May 1992 Mr Paterson saw an advertisement for the sale of Godfreys Pies, which was a bakery business engaged, as its name suggests, in the manufacturing of pies.The business comprised a bakery and a retail shop in Dunedin.Lane Group had acquired the business in 1989, being engaged also through its associated company Night 'N' Day Foodstores Limited, in the operation and franchising of a chain of six retail stores.These traded under the name Night 'N' Day.Two of the stores were in Dunedin.The others were in Invercargill, Arrowtown, Timaru and Christchurch.The Night 'N' Day Stores operated 24 hours a day and were small supermarkets or superettes.Two were owned by franchisees and the others by Lane Group.The Lanes acquired Godfreys Pies at least partly in order to supply pies to their Night 'N' Day outlets. During the three years of their ownership the Lanes significantly increased the wholesale trade of Godfreys Pies, ie. trade other than through the Godfreys retail outlet.This increased wholesale turnover was mainly as a result of supplies to Night 'N' Day outlets, or, as the Judge put it, on the back of those supplies.
[60] After three years the Lanes decided to sell Godfreys Pies so as to concentrate on their grocery businesses.The advertisement which Mr Paterson saw had been placed by a real estate agent named Fisken and Associates Limited. That company was the Lane's agent.The salesman was a Mr Garrick.The Patersons inspected the premises and Mr Garrick provided them with certain financial information which they took to their accountant, Mr Fergus.The asking price was $210,000.Mr Fergus recommended the Patersons pay no more than $185,000.They offered $180,000.In due course a contract was entered into at $188,500.
[61] The Judge described the financial information made available to the Patersons as limited.It comprised, in the Judge's words:
1. An advertising flyer which set out some very brief particulars, including details as to the proposed price, lease and rates; but which also referred to Lane Group Ltd having "established agencies in Invercargill and Christchurch which are now beginning to show an increase in turnover".
2. A profit and loss account for the year ending 30 June 1991, showing "sales" for the year ending 30 June 1991 of $997,679 and a gross margin of $544,596.
3. A profit and loss account for the 4 months ending 31 October 1991 showing "sales" of $327,813 and a gross margin of $182,470.
4. A profit and loss account for the 9 months ending 31 March 1992 showing "sales" of $771,345 and a gross margin of $448,161.
5. Figures for April and May 1992.
Items 1, 2, 3 and 4, but not 5, were given by the Patersons to Mr Fergus.Item 5 was given to the Patersons some little time after the other items.
A cashflow showing anticipated cashflow receipts for period 1 July 1992-30 June 1993 of $985,000 was later (that is after 15 June 1992) prepared by Lane Group Ltd and made available to the Patersons.Because preparation of this document post-dated the contract, it can be ignored for present purposes.
Of Godfreys Pies' total turnover for the year ending 31 March 1992, about 25% represented retail sales through its shop and the balance of the transactions was at wholesale.In the "sales" figures to which I have just referred were included transactions with Night 'N' Day stores which were in the order of 25% of total turnover (that is the retail and wholesale turnover of Godfreys Pies) and around one third of the wholesale turnover.
[62] The contract provided for the price to be apportioned as to $55,000 for goodwill, $118,500 for plant, fittings and fixtures, and $15,000 for stock in trade (subject to valuation).Settlement took place in early July 1992.As events unfolded the crucial issue became what knowledge the Patersons had of the trade connection and volume of business between Godfreys Pies and the Night 'N' Day outlets before they agreed to buy.The dispute between the parties arose because in mid-October the Night 'N' Day Stores stopped buying pies from Godfreys Pies.Thus a substantial part of Godfreys custom ceased and the business started to go downhill.The Patersons continued to operate the business but the purchase proved to be a financial disaster for them.
[63] As a consequence they sued Lane Group, Night 'N' Day, the Lanes and the agent Fisken.During the trial the Patersons elected to be non suited against Fisken.This has led to a costs issue which will be examined later.The Patersons' primary cause of action was based on s9 of the Fair Trading Act 1986, and asserted that the supply of the financial information mentioned above on an unqualified basis, amounted to misleading conduct by Lane Group which had caused Paterson Limited substantial losses.
High Court judgment
[64] The Judge regarded the essential issue as being whether the representations inherent in the financial information were misleading.He helpfully set out what he saw as the salient features of the case in this way:
1. The reason why vendors in the position of the Lanes make available trading figures and why such figures are sought by purchasers such as the Patersons is because a purchaser, in deciding whether to buy a business, can be expected to extrapolate forward from past sales with a view to establishing likely turnover for the future.If there is a reason known to the vendor, but not the purchaser, why past sales figures are not a reasonable or reliable basis for predicting future sales, then proffering the sales figures in this context has significant potential for misleading the purchaser.
2. That so significant a portion of the wholesale turnover related to supplies to the Night 'N' Day stores was highly material for a purchaser to know. In-house transactions of this sort could not be regarded as being as reliable in terms of predicting future turnover as diversified sales to purchasers unrelated to Godfreys Pies.Sales in the latter category might be thought to reflect the normal play of market forces and competitive advantages enjoyed by Godfreys Pies.But the dominant reason why the Night 'N' Day stores acquired product from Godfreys Pies was because of common ownership.With a sale to the Patersons, that dominant reason no longer applied.
3. The way in which the Godfreys Pies business was set up in terms of plant and staff was such that the loss of the Night 'N' Day custom would put the profitability of the company in severe jeopardy.
4. In this case the documents made available to the Lanes referred to turnover by reference to the expression "sales".In-house transactions between the Godfreys Pies division of Lane Group Ltd and the Night 'N' Day stores division of Lane Group Ltd cannot be described accurately as "sales".It is of the essence of a sale that there are two parties, a vendor and purchaser.Mr Barton [for Lane Group] argued that if the Night 'N' Day stores had been owned by another company associated with Mr and Mrs Lane then the description "sales" would be true but the economic substance of the situation would be the same as far as the sale to the Patersons was concerned.That is so.But this does not make the description of the in-house transactions between the Godfreys Pies division of Lane Group Ltd and the Night 'N' Day stores division of Lane Group Ltd any less a misnomer and thus, in itself, misleading.
[65] On that basis the Judge held that the unqualified provision of the financial information was misleading.He then turned to what knowledge the Patersons had of the "in-house" nature of the Night 'N' Day custom, prior to their entering into the contract.This was his conclusion on that point:
I have no doubt that, if directly asked by the Patersons about the makeup of the turnover figures, the Lanes would have truthfully responded.I also accept that the Patersons were told something of the involvement of the Lanes in the grocery business.But I have major reservations about the precision of the recollections of the Lanes as to the detail of what was said.I am satisfied that whatever was said by the Lanes to the Patersons, it was not sufficient to alert the Patersons to the fact that a material part of the apparent turnover of Godfreys Pies represented in-house transactions that were not in truth "sales".Moreover, even if the Patersons had been told that 6 stores generally associated with the Lanes were customers of Godfreys Pies (and I do not believe that the information given was as specific as this) that in itself would not have been sufficient to signify the significance of the potential problem; this given that Godfreys Pies sold to a great many (perhaps around 90) retail outlets.
[66] The Judge then went on to consider what steps the Patersons would have taken had they been fully aware of the true position:
I have no doubt that if the turnover figures had carried the qualification that a substantial proportion of the "sales" referred to in the turnover figures were not, in truth, sales but rather in-house transactions, appropriate commercial steps would have been taken on the advice of the accountant to secure the position of the Patersons.By 12 June 1992 the Patersons were emotionally committed to the sale and had taken all the financial advice which they were going to take before the sale was consummated.I think that the die was cast once the financial information had been submitted to Mr Fergus and advice had been received by the Patersons.Hints and clues which may have emerged on the evening of 12 June 1992 or perhaps on other occasions and which may have been sufficient to set off alarm bells in the minds of more astute business people are therefore, at least in a causative sense, irrelevant in this context.
[67] After referring to the approach of this Court in AMP Finance NZ Ltd v Heaven (1997) 8 TCLR 144, the Judge found that the Lanes' conduct in making the financial information available in an unqualified way was capable of being misleading, that the Patersons were misled, and that it was not unreasonable for them to have been so misled.He held that the financial information was not "so clear and unequivocal" as to make it unreasonable for the Patersons to take the turnover and sales information at face value.
[68] The Judge found that, if aware of the true position, the Patersons would probably have made their purchase conditional on a supply agreement being entered into between Godfreys Pies and the Night 'N' Day stores.He fixed Paterson Limited's losses as a result of its not having had any such supply contract on what was called a walk away basis:essentially a reliance type of loss rather than one based on expectations, albeit the Judge considered that if the damages issue had been differently presented an expectation element might have been justified.He held that the purchase price fairly valued the business as if a supply contract had been in place, and that without any such contract it was worth less.After discussing a variety of matters affecting the assessment of damages, such as the reasons why the Night 'N' Day stores stopped buying Godfreys Pies - quality issues were relevant in this respect - the Judge came to a figure which he discounted by 15% for contingency reasons. He regarded that percentage discount as conservative on the basis that his starting figure was also conservative.Essentially the award proceeded on the basis that the business, without a supply contract, had no goodwill.The figure ultimately fixed as compensation ($56,312.00 plus interest) closely equated the amount paid for goodwill ($55,000.00), albeit this was not exactly the basis of the Judge's assessment which followed the principle but not the detail of the damages evidence called by Paterson Ltd.
Submissions in summary
[69] Mr Barton argued that the failure to qualify the accounts did not amount to misleading conduct.He further contended it had not been established that the Patersons had been misled by the lack of qualification.His next argument was that the losses suffered by Paterson Ltd had not been caused by the allegedly misleading conduct.Assuming Lane Group was liable, Mr Barton contended that the damages calculation adopted by the Judge was flawed, and if proper weight had been given to contingencies, Paterson Ltd should not have been awarded any damages.Lane Group also contended it should not have been held liable for Fisken's costs.Mr Andersen presented argument in support of the judgment emphasising in particular that the points at issue, save in relation to costs, were substantially matters of fact and no sufficient ground had been shown for this Court to differ from the Judge's conclusions.
Misleading conduct
[70] Neither side suggested we should revisit the approach taken by this Court in AMP Finance NZ Ltd v Heaven (supra).The Judge rightly followed that approach and so will we.The first question is whether the conduct impugned was capable of being misleading.Mr Barton argued it was not.I cannot accept that submission.The Judge was entitled in the circumstances to come to the view that when the financial information was supplied it had the capacity to mislead because it failed to disclose the fact that a significant part of the wholesale turnover of Godfreys Pies depended on the Night 'N' Day connection. As presented the information was apt to lead a potential purchaser to believe that wholesale transactions were all or almost all of a truly external kind. Although, as Mr Barton submitted, the Fair Trading Act does not abrogate the doctrine of caveat emptor, that is not the present point.What the Act does is to prohibit the vendor from misleading the purchaser.Whatever may have been said during the pre-contract discussions was not enough, in the Judge's view, to remove the capacity of the information supplied earlier to mislead.In any event the harm had effectively already been done, because the information had been supplied by the Patersons to their accountant who had based his advice upon it.I am unable to accept the argument that the Judge was wrong in holding the information as provided was capable of misleading the Patersons.
[71] The second issue is whether the Patersons were in fact misled.Mr Barton placed emphasis on the proposition that they had no real interest in why the Lanes were selling the business nor were they interested in finding out more about its customers.Counsel also stressed that the Patersons had the benefit of experienced accounting advice.But that was part of the problem.They relied on their accountant and he clearly was misled by the way the financial information was presented.They did not have the knowledge or business acumen to appreciate the significance of the in-house transactions.On an aspect like the present, falling within the province of a professional adviser, it cannot be said that the purchasers were not misled just because they had no interest in or no appreciation of the significance of the point involved, when the person whose experience they naturally and reasonably relied on was misled.If he was, so were they.I cannot therefore accept the contention that the Patersons were not misled.
[72] The third issue is whether it was reasonable for them to be misled. Again, regard must be had to the fact that they referred the financial information to their accountant.The issue really becomes whether it was reasonable for him to be misled.He said, and the Judge accepted, that if he had appreciated the true position he would have recommended a supply contract and that the Patersons should not buy without one.It is implicit in the Judge's view of the matter that he regarded it as reasonable for the Patersons to be misled via Mr Fergus, the accountant.He and they were entitled to take the financial information at face value.I am not persuaded by Mr Barton's argument that this conclusion was wrong.It was open to the Judge on the evidence before him and I decline to disturb it.
Causation of loss
[73]The Judge held that the loss which Paterson Ltd suffered resulted from there not being a supply contract.Mr Barton argued that the real cause of the loss was a quality problem because there would have been no termination of the contract in the absence of that factor.That is too simplistic a view.The Judge found that if there had been a formal supply contract, its existence:
would have altered the behaviour of both the Patersons and the Lanes.The Patersons would, I think, have been more focused in terms of providing appropriate quality and the Lanes would not have wanted to incur the risk of legal action by a precipitate termination of the contract.It is, however, quite possible that even with such a contract in place relationships between the Lanes and the Patersons may have in any event broken down.
[74] He went on to say:
There is no precise way of measuring all of this and attempts to analyse through all the various possibilities would lend spurious precision to the process I have to undertake.I have reached the view that the appropriate result is to reduce by 15% my assessment of the gross loss to reflect these considerations.
[75] The Judge took an appropriately broad and pragmatic approach to the causation issue.Clearly the absence of the supply contract was capable of being seen as productive of loss to Paterson Ltd.The Judge's 15% discount factor was acknowledged by him to be conservative because of the conservative approach he took to the calculation of the loss.I have considered all Mr Barton's submissions on this aspect of the case but find ourselves unable to say that the Judge's conclusion was wrong or not open to him on the evidence.
Damages
[76] Mr Barton argued that the Judge had allowed an expectation approach to colour what was admittedly a reliance assessment, ie. the "walk away" model adopted.The ultimate assessment was made up as follows:
Loss of goodwill$55,000
Trading out allowance$11,250
$66,250
Less 15% for contingencies$9,938
[77] Counsel argued that an award of damages on this basis effectively put Paterson Ltd in the position it would have been in had there been a supply contract.He suggested that this was an improper expectation approach compensating for the loss of the perceived bargain and contrary to the decision of this Court in Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15.Counsel submitted that in any event the trading out loss of $11,250 could not be justified.I do not consider that the Judge's assessment is open to criticism on this basis or at all.The misleading conduct caused Paterson Ltd to enter into the purchase contract without the protection of a supply contract.The purchasers committed themselves when, without the misleading conduct, they would not have done so at all, or at least not without a supply contract.The concepts of reliance loss and expectation loss are not necessarily to be seen as mutually exclusive, nor as involving bright line distinctions.At times an amalgamated approach may be the best way of doing justice, provided any risk of double compensation is kept in mind.
[78] What was at issue in Cox & Coxon v Leipst (supra) was essentially whether damages of a promissory kind could be awarded under the Fair Trading Act; in other words, damages designed to produce the benefits inherent in the performance of a promise as if it were of a contractual kind. Here there was no promise of a supply contract which was not fulfilled.There was the absence of a supply contract which, on the probabilities, would have been present had the Patersons not been misled.Assessment of damages is essentially a question of fact: Porter v New Zealand Land Development Co Ltd [1992] 2 NZLR 462 and the cases there cited.This Court will generally intervene only if there has been some error of principle, or the award can be said to be a wholly erroneous assessment:Steiller v Porirua City Council [1986] 1 NZLR 84 (CA).There is in this case no such basis for intervention.The Judge's assessment was open to him on the evidence, contained no error of principle, and represented a fair and reasonable assessment, in the somewhat unusual set of circumstances in which damages fell to be determined.
Costs
[79] Following Paterson Ltd's election to be non suited against Fisken, the latter became entitled to costs.These the Judge assessed at $36,500.He awarded them direct against Lane Group, the unsuccessful defendant, rather than against Paterson Ltd, the plaintiff.By doing this he made what is conventionally known as a Sanderson order (from Sanderson v Blyth Theatre Co [1903] 2 QB 533), as opposed to a Bullock order (from Bullock v London General Omnibus Co [1907] 1 QB 264), the latter being an order whereby the plaintiff first carries the successful defendant's costs and is then permitted to add all or some of them to the costs payable to it by the unsuccessful defendant.The basis of the Judge's decision that Lane Group as the unsuccessful defendant should pay the costs of Fisken as a successful defendant, was that it was reasonable for Paterson Ltd to have joined Fisken as a defendant.Mr Barton argued that this outcome did not represent the justice of the case and was an erroneous application of the Court's discretion. To resolve this issue it is necessary to examine the development of the law which applies in situations like the present.
[80] The only relevant decision of this Court which has come to our attention is Public Trustee v Auckland Electric Power Board [1944] NZLR 782 (CA). At 833 Myers CJ, after introducing the issue as being whether an unsuccessful defendant should be ordered to pay the costs of a successful defendant, said:
But the question remains whether or not the Company and not the plaintiff should be ordered to pay them.That depends upon whether or not it was a reasonable and proper course for the plaintiff to join the Company and Brown and Co. as defendants : Besterman v British Motor Club Co., Ltd [1914] 3 KB 181; Enderby v Scott and City of Wanganui [1928] NZLR 407; GLR 313; Byron v Woolnough Window Co. [1932] NZLR 1506; GLR 440; and Mikaere v Te Whaka Waiapu [1938] NZLR 592.It is true that the plaintiff called a witness, Mr Hutchison, the Power Board Supply Engineer, and that his evidence went far to exculpate Campbell, Brown and Co.'s employee; and it may be assumed that the plaintiff's advisers knew some time before the trial what evidence Mr Hutchison could give.Nevertheless the plaintiff could not know what would be the attitude of the Company and Brown and Co., or, for that matter, of the Power Board.But, whatever the Power Board's attitude might be, it was quite within the region of probability that the Company and Brown and Co. might endeavour to cast the responsibility upon each other, and upon the material before the plaintiff's advisers and later before the Court either one of those two defendants or both might have been held at fault.That being so, I think the joinder was reasonable and proper and that the costs of the successful defendant should fall on the unsuccessful defendant.It is true that in some cases, where there are different acts of negligence alleged (the learned Judge below has cited three such cases), the Court has ordered the costs of the successful defendant to be paid by the plaintiff, but the test must always be that laid down in Besterman v British Motor Cab Co., Ltd [1914] QB 181, and the other cases cited above.
[81] Blair J concurred with this approach at 844, so did Kennedy J at 844, Callan J at 849, and Northcroft J at 849-850.Besterman's case, which this Court thus followed, concentrated on whether it was reasonable for a plaintiff to sue the successful defendant as well as the unsuccessful defendant.If it were, the costs of doing so were seen as a reasonable and proper expense of the proceeding and thus as properly payable by the unsuccessful defendant.In approaching the matter in that way, the Court of Appeal in England overruled two earlier cases in which the focus had been more on the attitude of the defendants in the sense of whether one was trying to shift the blame in whole or in part onto the other:see Vine v National Motor Cab Co (1913) 29 TLR 311 and Mulhern v National Motor Cab Co (1913) 29 TLR 677.
[82] Besterman was decided in 1914.This Court followed it in the Auckland Electric Power Board case in 1944.There was a development in England in 1948 when in Hong v A & R Brown Ltd [1948] 4 QB 515, 1 All ER 185, the Court of Appeal adopted a somewhat different approach from that in Besterman.The decision in Hong had as a relevant dimension the English rule then corresponding with our Rule 74(3) which provides that where the plaintiff is in doubt as to the person from whom he is entitled to redress he may join one or more defendants, so that which is liable and to what extent may be determined in the one proceeding.The English Court of Appeal thought this rule was permissive and did not give the plaintiff any right to have the costs of the successful defendant paid by the unsuccessful defendant. Although focussing on the rule, their judgment was also of general application. The headnote to the case in the All England Reports accurately captures the essence of the decision in this way:
Whether or not a special order [either a Bullock or a Sanderson order] should be made is a matter of discretion for the judge, and the fact that, when the action was started, it was a reasonable course for the plaintiff to join the successful defendant does not entitle the plaintiff to an order that the costs of the successful defendant be paid by the unsuccessful defendant if, in the opinion of the judge, it is not reasonable that the unsuccessful defendant should be penalised.
[83] The author of the headnote describes Hong's case as "explaining" Besterman's case to that effect.The position reached in England after Hong's case can thus be put in this way.If one defendant is successful and the other unsuccessful, there is no rule or even a general principle, which governs the question of costs.They remain as always in the discretion of the Judge.The generally discretionary nature of the exercise, both whether to make an order that an unsuccessful defendant pay or contribute to the costs of a successful defendant, and, if so, whether by Bullock or Sanderson order, was emphasised by the English Court of Appeal more recently in Meyer v Harte [1960] 2 All ER 840:see also Goldsworthy v Bickell [1987] Ch 378, 418 (CA) confirming the width and untrammelled nature of the discretion.It appears from the White Book (The Supreme Court Practice) under Order 62/B/119 that this is the most recent relevant authority in the United Kingdom.
[84] While it may have been reasonable for the plaintiff to join both defendants, that of itself does not entitle the plaintiff to an order that the unsuccessful defendant should pay the successful defendant's costs, either directly (as a Sanderson order) or indirectly (as a Bullock order).The reasonableness of the original joinder is certainly a relevant factor.If such joinder was unreasonable the plaintiff cannot seek to pass costs payable by it to the successful defendant over to the unsuccessful defendant.Even if the joinder is reasonable at the outset, the position must also be looked at from the point of view of the unsuccessful defendant.If that party has done nothing to cause or contribute to the joinder of the successful defendant, that will be a point in its favour.The converse also applies.How the proceeding develops may well be relevant.Another factor which may be of moment comes into play if an unsuccessful defendant is found liable for significantly less than the claim made against both itself and the successful defendant.Such a situation will be relevant to the ultimate discretion because the costs payable in that event by the plaintiff to the successful defendant (based on the amount claimed) will be more than the costs payable by the unsuccessful defendant to the plaintiff (based on the amount recovered).
[85] The decision of the full Court of the Supreme Court in Ronaldson v Rankin [1948] NZLR 850 was a case of that kind.The unsuccessful defendant was ordered to pay to the plaintiff only a portion of the costs the plaintiff had to pay the successful defendant.The same point was made by Hardie Boys J sitting in the High Court in Brown v Heathcote County (No. 2) [1982] 2 NZLR 618 at 626-627.His Honour referred to Ronaldson v Rankin, albeit emphasising that no general rule was intended, only the identification of a feature capable of influencing the exercise of the discretion.In discussing the applicable principles in the present case, Young J cited from Brown v Heathcote County at 626 to the effect that whether an unsuccessful defendant should contribute to the costs payable by the plaintiff to the successful defendant, and if so to what extent, were questions to be decided "according to the justice of the case".He then held that the test fell to be determined according to whether it was a "reasonable and proper course" for the plaintiff to have joined the successful defendant - the cited phrase coming from the judgment of Myers CJ in the Auckland Electric Power Board case.
[86] The Judge then referred to Paterson Ltd's explanation for why it had joined Fisken, as being the statement in an affidavit by Mrs Lane at an early interlocutory stage:
I note that Mr Paterson in his affidavit alleges that 28% of Godfreys Pies business involved purchases by the Lane Group Ltd and the Night 'N' Day Foodstores and that he was unaware of this fact.We are surprised by this. The figure was never as high as 28% but all of this information was available prior to sale (the May figure was 17.6% and the June figure 23%).We supplied all of these details to the real estate agent acting in respect of the sale and he was authorised to supply such information to purchasers on request.Earlier prospective purchasers had certainly obtained this information and discussed it with us.
The Judge then noted the submission made by Mr Andersen for Paterson Ltd:
Mr Garrick [Fisken's salesman] denied he had received this information in his draft brief of evidence.Mr Lane in his evidence no longer maintained that Mr Garrick had the information 'and was authorised to supply it on request' and instead stated that 'I personally left these details with the receptionist' (paragraph 9 of his brief).That left the Fourth Defendant [Fisken] in the position of an unknowing conveyor of misleading information with the consequence that the true fault lay with the First Defendant [Lane Group] and not the Fourth Defendant. [Fisken]
He noted also the submission of Mr Barton for Lane Group:
In his submissions on behalf of Lane Group Ltd Mr Barton has noted that Lane Group Ltd had never issued anything in the nature of a challenge in respect of the real estate agent and that there was no material difference between leaving the information with a receptionist and giving the material details to Mr Garrick.
The Judge then discussed the range of possibilities with which Paterson Ltd was confronted:
I think that the plaintiff was confronted with a range of possibilities.On one end of the continuum, Fisken & Associates Ltd was merely the innocent conduit of information originating with Lane Group Ltd which it had no reason to suspect was misleading.Assuming both that this was the case and was known to be so by all parties, the only point in joining Fisken & Associates Ltd would have been to cover the contingency that the other defendants might prove to be insolvent.At the other end of the continuum was the possibility that all relevant information had been provided to Fisken & Associates Ltd by Lane Group Ltd and that the decision as to what should, or should not, be told to the plaintiff was effectively left with the real estate agent.If this was the position then I think it likely that the burden of any judgment would have rested significantly with Fisken & Associates Ltd.On the continuum which I have postulated there are, no doubt, a number of other positions of an intermediate nature.
[87] The Judge next observed that the approach of Hardie Boys J in Brown v Heathcote County suggested that an unsuccessful defendant will "usually" pay the costs of an successful defendant unless it can be shown that the joining of the successful defendant was not a "reasonable and proper course" for the plaintiff to adopt.Young J concluded his consideration of the issue in the following way:
Given that I am not in a position to make a finding as to the extent of the knowledge of Mr Garrick as to the facts underlying the reasons why I have held that the information supplied was misleading, I think that it would not be open for me to find fairly that it was not reasonable and proper to join Fisken & Associates Ltd.I am, however, uneasy about deciding this issue on the basis of something equivalent to an onus of proof on the unsuccessful defendant, this particularly in a case where I have never been required to reach any definitive views as to the position of Fisken & Associates Ltd.
The drift of the cases certainly suggests that the issue (that is whether the joining of the successful defendants was a "reasonable and proper course") is to be looked at in terms of how the matter would have appeared to the plaintiff when the proceedings were commenced.Obviously there may be special issues which arise where it becomes clear, at an early date, that a claim against a particular defendant is simply not viable and if that is the case, then it must be material on the issue of the incidence of costs.Here the plaintiff could not be expected to know precisely the stance which would be adopted by Lane Group Ltd at trial (this despite briefs of evidence and all the other incidents of modern litigation).In those circumstances, it seems to me that the plaintiff was entitled to cover the contingency that issues might arise as to the contribution of Fisken & Associates as to the losses which the plaintiff sought to recover.It should be remembered that the awarding of relief under the Fair Trading Act is discretionary.Putting myself in the position of counsel for the plaintiff, there would have been considerable risks in not joining Fisken & Associates Ltd.As well there is the solvency issue although this was not raised by Mr Andersen.
So, the result is that I have reached the view that the costs awarded to Fisken & Associates Ltd ought to be met by the first defendant [Lane Group].
I have been troubled by the question whether the abrupt election of a non-suit by the plaintiff [Paterson Ltd] against Fisken & Associates, in the course of the trial, has prejudiced Lane Group Ltd.On the information before me it is certainly quite possible that there would have been judgment entered against Fisken & Associates Ltd.On reflection, however, I think that there has been no real prejudice to Lane Group Ltd.Given that Lane Group Ltd has never suggested that what happened was the fault of Fisken & Associates, it seems at least likely that the burden of any judgment against Fisken & Associates Ltd would, in any event, have been required to have been shouldered by Lane Group Ltd (for whom Fisken & Associates Ltd was acting as an agent).
In accordance with the usual New Zealand practice, I make a Sanderson order - that is that Lane Group Ltd pay to Fisken & Associates Ltd the costs which I have awarded in favour of Fisken & Associates Ltd.
[88] It is apparent from the foregoing that the Judge was substantially influenced by the proposition that if it was reasonable and proper for Paterson Ltd to join Fisken initially, the costs payable by Paterson Ltd to Fisken on the non suit should ordinarily be regarded as part of the costs of the proceeding, and should thus be paid to Paterson Ltd by Lane Group as the unsuccessful defendant.That prima facie position comes from the Auckland Electric Power Board case, following Besterman's case.It does not reflect the explanation of Besterman in Hong whereby the question was regarded as one of general discretion, with the original reasonable and proper joinder simply one of the factors to take into account.
[89] In his judgmentin the Auckland Electric Power Board case noted above, Myers CJ said:"I think the joinder was reasonable and proper and that the costs of the successful defendant should fall on the unsuccessful defendant."That sentence is capable of being read in two ways.First, that because the joinder was reasonable and proper, therefore the costs of the successful defendant should fall on the unsuccessful defendant.The second and alternative reading, is that the joinder was reasonable and proper, thus the costs of the successful defendant could be awarded against the unsuccessful defendant, and in the circumstances of the case that was the appropriate order to make.In the light of Hong's case and the general principle that costs are in the discretion of the Court, I consider the second is the preferable reading of what Myers CJ said.It is only when the original joinder is reasonable and proper that the Court may consider exercising its discretion to award the costs of the successful defendant, either directly or indirectly, against the unsuccessful defendant.Whether to do so and if so to what extent, are discretionary matters upon which all relevant considerations must be taken into account.In the present case the Judge was understandably troubled by his inability, in view of the non suit, to make any finding as to where on the continuum he had earlier identified, the case truly lay.Furthermore the Judge rightly acknowledged that pre trial developments, including exchange of briefs of evidence, could have a significant bearing on the need to keep a defendant in the proceeding for the purposes of trial, even if the original joinder had been reasonable and proper.In this case he considered that Paterson Ltd could not be expected to know precisely the stance Lane Group would take at trial as regards Fisken.
[90] Mr Barton submitted with some force that in view of the total absence of any suggestion before trial that Lane Group was seeking to shift blame from itself to Fisken, or to disavow Fisken's actions, the position at the time of the non suit was no different from the position several weeks before the trial started.It seems the non suit election was a reaction to an application by Fisken for judgment at the end of Paterson Ltd's case.Whether Fisken might have been concurrently liable with Lane Group, as the latter's agent in terms of s45(2) of the Fair Trading Act 1986, does not require discussion, save that I am inclined to endorse the Judge's observation that it was certainly quite possible that judgment would have been entered against Fisken as well as Lane Group.
[91] With respect to the Judge, I consider he was in error in taking what was essentially the first meaning out of what Myers CJ said in the Auckland Electric Power Board case.With equal respect, I consider Hardie Boys J was in error when he said in Brown at 266 that as the successful defendant was properly and reasonably joined, the costs resulting from that joinder should "in principle" be payable by the unsuccessful defendant.There is in reality no such principle, either on an absolute or on a presumptive basis.Obviously a reasonable and proper joinder of the successful defendant will be a relevant and sometimes a decisive consideration in the plaintiff's favour.But against an originally reasonable and proper joinder must be set any relevant factors in favour of the unsuccessful defendant.As mentioned in paragraph 27 above these can include a change in the position since original joinder, how much was recovered as against the amount claimed, whether the unsuccessful defendant caused or contributed to the original joinder, and in the end the overall justice of the matter as between the three parties concerned.It must also be recognised that the solution does not have to be an all or nothing one.It is possible by a Bullock order to require the plaintiff to pay the successful defendant's costs in full, but to allow the plaintiff to pass on only a proportion of those costs to the unsuccessful defendant.
[92] I turn now to consider the present case on the foregoing basis.The discretion must, in the circumstances, be exercised anew.While there may have been tactical merit in joining Fisken originally, I must say that the asserted basis for that joinder, ie. the paragraph from Mrs Lane's affidavit noted earlier, was a rather fragile one.The suggested signal that Lane Group was seeking to blame Fisken was oblique.There is no evidence that Paterson Ltd endeavoured by any means to clarify the position.There is no evidence that there was an insolvency risk in suing just Lane Group.As the case developed there was no suggestion that Lane Group, by its pleadings or otherwise, was attempting to place blame on Fisken or to assert that Fisken had acted outside its authority or otherwise in breach of its duty to Lane Group.There was no suggestion that Fisken's conduct did not bind Lane Group.Nothing in the briefs of evidence exchanged before trial gave any suggestion that Lane Group was endeavouring to set up a situation in which it would escape liability but leave Fisken carrying the can for the allegedly misleading conduct.The idea that in this situation something might emerge out of the cross-examination of the Paterson Ltd witnesses to alter the position seems very far fetched.Thus although it may be possible to say that the original joinder of Fisken as a defendant was reasonable and proper, it was only just so and certainly as the case proceeded through the customary interlocutory stages, any concerns originally caused by Mrs Lane's affidavit should have dissipated.
[93] It is her affidavit which is put forward as the primary justification for Fisken's original joinder.Any retention of Fisken in the proceedings for the purposes of trial must be seen objectively as having been substantially for Paterson Ltd's tactical advantage.As Lane Group had done little if anything to cause or contribute to its original or continued presence as a defendant, it hardly seems just that Lane Group should bear all Fisken's costs.There is also the point that, subject to the remote possibility of some need for Fisken's presence as a defendant emerging during the course of the cross-examination of Paterson Ltd's witnesses, nothing had changed at the time of the non suit from the position which obtained pre-trial.The costs of trial were by far the greatest component in Fisken's total costs.An additional point of relevance is that Paterson Ltd recovered only $56,312 plus interest against Lane Group but was originally claiming $500,000 against it and Fisken. That sum was reduced shortly before trial to a little under $200,000.Thus it is hardly fair to require Lane Group to pay the full amount of Fisken's costs, which were assessed on the sum claimed rather than the sum recovered.That would put Lane Group into the position of paying significantly more for Fisken's costs than it itself had to pay towards Paterson Ltd's costs.
[94] In broad terms the difference should be carried by Paterson Ltd.In all these circumstances I consider that a Sanderson order directing Lane Group to pay all Fisken's costs was inappropriate.The situation called for a Bullock order whereby Paterson Ltd was able to pass on a proportion only of Fisken's costs to Lane Group, it carrying the remainder.I consider there should be some contribution by Lane Group to Fisken's costs, on account of the fact that it cannot be said the original joinder of Fisken was unreasonable and improper.Nevertheless the overall balance of all the relevant discretionary factors must substantially favour Lane Group.The most it would be reasonable for Lane Group to have to contribute is 20% of Fisken's costs, ie. the sum of $7,300.
Conclusion - formal orders
[95] In accordance with the view of the majority, Lane Group's appeal from the judgment entered against it in the High Court is allowed, but only to the extent of setting aside the order that it pay costs to Fisken in the sum of $36,500.In all other respects, the Court being unanimous Lane Group's appeal is dismissed, as are the appeals of Night 'N' Day Foodstores, and Mr and Mrs Lane.In view of the setting aside of the costs order just mentioned, in its place there would be orders that Paterson Ltd pay Fisken's costs in the sum of $36,500, and that Lane Group pay to Paterson Ltd, in addition to the costs it must pay on its own account, the sum of $7,300 on account of Fisken's costs. Lane Group has had limited success in its appeal.It should make a contribution to Paterson Ltd's costs of the appeal which are fixed at $3,500 plus disbursements, including reasonable travel and accommodation expenses of counsel, to be fixed if necessary by the Registrar.
Solicitors
Caudwells, Dunedin, for Plaintiffs
Hall Cotton, Dunedin, for Defendant
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URL: http://www.nzlii.org/nz/cases/NZCA/1999/179.html